HUSSMAN: It Is Now One Of The Worst Times To Invest In History

In his latest note, John Hussman argues that it's one of the worst
times to invest. Period.

Based on his proprietary soup of risk indicators for the market,
the current exuberant situation puts it on par with some of the
great peaks, including 1998-2000.

Importantly, the market is again characterized by an extreme set
of conditions that we've previously associated with a "Who's Who of
Awful Times to Invest." The rare instances we've seen this
syndrome historically are reviewed in that previous weekly
comment. They include the 1972-73 and 1987 market peaks, and
several instances since 1998. The more recent instances of this
syndrome are shown by the blue bands on the chart below. Note
that each of the separate instances in the 1999-2000 period were
followed in short order by intermediate market declines of
between 10-18%, and of course, ultimately by a plunge of more
than 50% in 2000-2002. Likewise, the 2007 instance was followed
in short order by a correction of nearly 10%, and a few months
later by a plunge of more than 50% in 2007-2009. The more recent
instances in 2010 and 2011 have also been followed by substantial
market selloffs in each case, though with a longer lag in 2011
(due to ongoing QE2 operations). Aggressive monetary policy did
not prevent the ultimate declines, though massive central bank
interventions have undoubtedly helped to short-circuit the more
violent follow-through that occurred in 1973-1974, 1987,
2000-2002, and 2007-2009, at least to-date.

A word of caution. While a few of the highlighted instances were
followed by immediate weakness, it is more typical for these
conditions to persist for several weeks and even longer in some
cases (for example, the wide blue strip in late-2010 and early
2011). When we look at longer-term charts like the one above,
it's easy to see how fleeting the intervening gains turned out to
be in hindsight. However, it's easy to underestimate how utterly
excruciating it is to remain hedged during these periods when you
actually have to live through day-after-day of advances
and small incremental new highs that are repeatedly greeted with
enthusiastic headlines and arguments that "this time it's
different." For us, it's particularly uncomfortable on days when
our stocks don't perform in line with the overall market, or when
the "implied volatility" declines on our option hedges.